The recent correction in the semiconductor sector has exerted considerable pressure on its bellwether, Nvidia (NASDAQ: NVDA), which recorded an almost 10% pullback in its two latest trading days, and has prompted investors to evaluate their strategies, with some seeing it as a strategic entry point to “buy the dip,” while others are reassessing their positions to determine if it’s prudent to trim their NVDA holdings.
With Nvidia stock’s impressive performance, surging by 160% in 2024 alone, the critical question arises: how much further can it climb, or has it already reached its peak?
Not everyone is a believer in NVDA stock
In a recent in-depth analysis of NVDA stock, stock market analyst Shawn Tully argued that while Nvidia is a remarkable company with a promising future as an artificial intelligence (AI) pioneer, its current valuation makes it a risky investment.
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He spoke with David Trainer, founder and CEO of research firm New Constructs, who remarked:
“Nvidia’s valuation is ridiculous. It’s facing the same curse as Tesla (NASDAQ: TSLA). When Tesla became profitable, many competitors entered the EV market, reducing margins and slowing sales. The same will happen with Nvidia.”
Trainer explained that investors are inflating Nvidia’s valuation by assuming its current competitive advantage will last indefinitely. However, margins as high as Nvidia’s attract attention.
“For now, Nvidia can do what no one else can, but top competitors will eventually find a way. It will become a race to the bottom.”
But most of them are bullish on NVDA stock
Analysts at Bank of America see significant growth potential for Nvidia. In a recent note, analysts Vivek Arya, Duksang Jang, and Lauren Guy acknowledged that while the stock’s sharp rise makes it “vulnerable” to profit-taking, any volatility should be short-lived. They have set a price target of $150 for the NVDA stock.
The analysts highlight that GenAI hardware deployments are still in the early stages, with only two years into what could be a three- to five-year deployment cycle. This represents a long-term opportunity of about $300 billion, tripling the current year’s estimate.
Regarding valuation, the BofA team finds it “compelling” at a price-to-earnings (P/E) ratio of around 30, based on a bullish earnings scenario of $5 per share. They point out that quarterly earnings per share have grown sixfold, outpacing the 4.5x stock increase since the pivotal Q1 of 2024.
In summary, the analysts argue that “Unlike the ‘dotcom boom‘ fueled by risky debt, GenAI deployment is a mission-critical race among well-funded cloud customers.”
Similarly, Melius Research analyst Ben Reitzes maintains a “buy” rating on NVIDIA stock and raises the price target from $125 to $160 on June 21, Reitzes highlighted the chipmaker’s impact on the broader AI industry and its end goal of creating software on the fly.
The recent pullback did not discourage the analysts on Wall Street, as they believe there is a further upside for this semiconductor stock.
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